No Contract Gives Video-Production Company Control of Wal-Mart Videos
Sometimes even the most efficient, sophisticated corporation makes a basic mistake, as illustrated by “Candid Camera: Trove of Videos Vexes Wal-Mart”, a story in The Wall Street Journal earlier this month.
From the 1970s until 2006, Wal-Mart employed Flagler Productions Inc. to help produce and film its yearly events for managers and shareholders, which also included entertainment for its annual meeting and sales meetings. Then, in late 2006, Wal-Mart stopped using Flagler. The decision came a few days after founder Mike Flagler sold his business to two employees. Not surprisingly, the loss of Wal-Mart’s business, which was 90% of Flagler’s revenues, decimated the small business, which had to downsize from a 20,000 square foot production facility to an 800 square foot office.
Flagler Productions offered to sell its video library of 15,000 tapes to Wal-Mart for several million dollars. Wal-Mart responded with an offer of $500,000, claiming that the footage would not be of interest to anyone else. Wal-Mart could not have been more wrong.
Either Wal-Mart forgot that it didn’t have a contract with Flagler Productions or it genuinely but naively believed that no one else would be interested in the footage. But no contract equals no control, so nothing prohibits Flagler from selling the tapes to those who may be interested in Wal-Mart’s activities, which includes, in the words of Journal reporter Gary McWilliams, “everyone from business historians and documentary filmmakers to plaintiffs lawyers and union organizers.”
As an example, McWilliams reports that in 2005, Diane M. Breneman filed suit on behalf of a 12-year-old boy against Wal-Mart and the manufacturer of plastic gasoline can sold in its stores. The boy was injured when he poured gasoline from the can onto some wet wood he was trying to light, and the can exploded. The lawsuit alleged that the can was defective because it didn’t have a device that prevented flames from traveling through its spout and exploding. In court, Wal-Mart’s lawyers denied that the gas can “presented any reasonable foreseeable risk … in the normal and expected use.”
Ms. Breneman says Flagler Productions located videos of product presentations to Wal-Mart managers in which executives gave parody testimonials about the same brand of gasoline can. In an apparent coincidence, one manager joked about setting fire to wet wood: "I torched it. Boom! Fired right up." In a separate skit, an employee is seen driving a riding lawn mower into a display of empty gasoline cans. A Wal-Mart executive vice president observing the collision jokes: "A great gas can. It didn’t explode." The tapes were made before the lawsuit was filed.
Breneman will ask the federal court to admit the footage as evidence of the foreseeability of the risk that the cans could catch fire and explode.
Ordinarily, Wal-Mart controls its corporate records, such as the videotapes, through contracts that restrict their access and use. But with no contract with Flagler Productions, Wal-Mart’s options are limited, at best. One of Wal-Mart’s lawyers sent a letter to Flagler Productions in January asserting its “claims to rights in the video library” and film transcripts, but that strikes me as too little, too late.
I was going to conclude by asking (rhetorically) how much Wal-Mart would be willing to pay today for Flagler Productions' video library, but it may be easier to figure out how much Wal-Mart isn't willing to pay. The day after the story appeared in the Journal, Wal-Mart released this letter from Flagler Productions' lawyer, in which he confirmed that in response to Flagler's demand for $150 million for the video library, Wal-Mart had offered $500,000, after which Flagler reduced its demand to $145 million and threatened to look elsewhere to sell the library if Wal-Mart wasn't interested in negotiating. According to ABC News investigative reporter Brian Ross' blog, Wal-Mart released the letter in order to show that Flagler wanted a more substantial amount for the tapes than media references to "several million dollars" might indicate.
